Is Starbucks JV too early to celebrate?

Is Starbucks JV too early to celebrate?

Shares of Tata Group's beverages company, Tata Global Beverages, have shot up over 11 per cent in the last two trading sessions after the company announced that the joint venture with global coffee chain Starbucks Coffee would open its first store here by the end of this month.

But, is it too early to celebrate? Tata Global shares closed up 1.79 per cent at Rs 145.35 on the Bombay Stock Exchange on Monday, adding to their Friday's gains.

Though analysts are mostly bullish about the development, some say it is too early to say anything about the prospects.

Is Starbucks JV too early to celebrate?

"If you look at the fundamental perspective, there is no data available to ascertain what kind of business prospects it will have. Once the numbers come out, analysts can do analysis on returns on capital employed and returns on investment," says Ajay Parmar, co-head, investment banking, Emkay Global Financial Services.

Tata Starbucks, the equal JV between Starbucks Coffee and Tata Global Beverages on September 28 announced that the first store in India will open in the Horniman Circle area of Mumbai by the end of October 2012.

Tata Starbucks also announced the appointment of Avani Saglani Davda as chief executive officer.

Is Starbucks JV too early to celebrate?

"Though it is a positive news for the company, the stock has also gone up, riding the increase in stock indices. Investors are preferring defensive stocks such as FMCG," Parmar said. The BSE Sensex has risen 1.32 per cent since the company announced its plans.

Added Rikesh Parikh, vice-president-markets strategy and product development - equities, Motilal Oswal Financial Services: "It (celebrations) could be slightly early. These are for the launch of the first store. I think few more stores would be lined up. Investors will be waiting for the execution part as to how many stores the JV would open every year. The stock could react accordingly," Parikh said.

Is Starbucks JV too early to celebrate?

The store will also be the first Starbucks location to feature espresso sourced and roasted locally from India through the coffee sourcing and roasting agreement with Tata Coffee, Tata Starbucks said.

Ganesh Ram, an analyst with Kim Eng Securities, says investors are looking at the venture as the one which has higher margins.

"It is a good start for the venture. For Tata Global it is getting into high margin business, that is why investors are bullish about it. Moreover, Starbucks has been successful in whichever markets it has entered in Asia. Investors must be thinking that the Indian venture will also have good amount of traction," said Ram.

"Tatas are looking to move beyond tea and coffee and it is a step in that direction," Ram added.

Image: A Starbucks outlet in New York.Photographs: Brendan McDermid/Reuters